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08/09/1993 - Special COMMUNITY REDEVELOPMENT AGENCY August 9, 1993 The City Commission, meeting as the Community Redevelopment Agency, met in special session at City Hall, Monday, August 9, 1993 at 1:05 P.M., with the following members present: Arthur X. Deegan, II Chairperson Rita Garvey Vice-Chairperson Richard Fitzgerald Trustee Sue Berfield Trustee Fred Thomas Trustee Absent: Phil Henderson Ex-officio Trustee Lillian Trickel Ex-officio Trustee Also Present were: Michael J. Wright Executive Director Milton A. Galbraith, Jr. Attorney Cynthia E. Goudeau Secretary The purpose of the meeting is to discuss the sale of CRA property in conjunction with the City sale of the Sun Bank (Atrium) Property. There have been ongoing discussions with Krumm and Associates regarding purchase of the Sun Bank (Atrium) Building and CRA properties in conjunction with that purchase. Chairperson Deegan requested the Executive Director explain a memo from Dan Deignan, City Finance Director, regarding the bonds. The Executive Director indicated there is a recent IRS ruling that may impact the sale of the garage. In March of 1993, the IRS issued the "safe harbor" rule which states that disposal of property financed with tax exempt bonds must pass three tests. One, the property must be reasonably expected to be used during the length of the bonds, there must be actual use for a substantial period of time, five years, and three, any sale must be at arms length with the purchaser paying fair market value. He stated staff was not aware of this ruling until last Friday, August 6. Mr. Deignan indicated this does not mean that the garage property can not be sold for less than market value but a ruling from the IRS would be needed. It was stated the Bilgore site would not fall under the same provisions as it was purchased for the purpose of reselling for development. Trustee Thomas questioned if the potential risk was being charged taxes retroactively. Mr. Deignan indicated the bond holders would have to pay the taxes, not the City. Trustee Thomas re-emphasized that the IRS could go back and declare interest for the entire tax free period. Mr. Deignan stated that the first that the bonds could be sold, tax free, was 1997. Trustee Thomas questioned if the taxes began upon closure and Mr. Deignan indicated they would. Trustee Fitzgerald questioned whether or not the City would be opened up to liability should it be found the bond holders are liable for taxes. The Attorney indicated this was probably so and that the City would have to make up the difference. Trustee Berfield questioned whether or not there was a grandfather provision in that the negotiations had been ongoing. It was stated we were not negotiating to sell prior to the issuance of the ruling. Trustee Thomas questioned the value of the Sun Bank (Atrium) Building prior to the City acquiring it. Mr. Deignan indicated the building and garage are now valued at $1 million less than it was assessed at the time we purchased it. Chairperson Deegan distributed what he considered to be a summary of the issues so far. (Exhibit A) Trustee Fitzgerald indicated he did not see anything different from his understanding in this summary however, he wished to reserve judgment regarding the City's objectives contained at the bottom of the page. Trustee Thomas requested that Trustee Fitzgerald clarify his statement and Trustee Fitzgerald indicated that he was not convinced the building should be sold and he was also not convinced regarding the five year return on investment. He also indicated he was not clear regarding what partnership and stewardship refer to in Chairperson Deegan's objective #4 which reads: accept partnership concept and also stewardship duties. Chairperson Deegan indicated he felt the CRA was committed to redeveloping downtown and they are beginning to get serious about alot of things. He stated the five year return on investment was from an earlier goal setting discussion. Trustee Fitzgerald requested that the record reflect his reservations regarding the City's objectives as provided in Chairperson Deegan's summary. Walter Mackey, representing the potential purchasers, stated they were also surprised regarding the tax ruling. He stated a dialogue needed to be created this afternoon and they need to have a feel for where the CRA is and what its priorities are. He stated that in considering purchasing the first two floors of the garage, tenants with a high clerical staff not able to afford monthly parking, had to be considered. He reviewed where the negotiations left off at the last meeting. He stated the new issue regarding taxes needs to be addressed. In response to a question from Mr. Mackey regarding the Bilgore property, Chairperson Deegan stated it is for sale and has been on the market for a year. He stated the proposal to lease it would allow the CRA to maintain control for other development in the future but if the potential purchasers offered enough at this time, outright sale may be considered. Mr. Mackey indicated land values have gone down throughout the City. Chairperson Deegan indicated they are offering $2.50 per square foot when the next most comparable property in downtown of selling for $6.00 per square foot. Mr. Mackey cautioned against comparing the value of the land to what can be put on it. Al Justice, also representing the potential purchasers, stated the Bilgore property may be able to be considered as an alternative and if an opinion comes back from the IRS about having to purchase the garage at fair market value, the Bilgore property could be considered again. He also indicated they have hired someone to study the Bilgore site for providing parking spaces. Trustee Thomas questioned whether or not a retention pond would be a part of the development and Mr. Justice indicated they would pay a fee in lieu of provision of retention. Trustee Thomas questioned whether or not there would still only be 150 spaces on the Bilgore site and Mr. Justice indicated that this would be so as their direction is to maximize green space. Chairperson Deegan questioned if the 150 spaces were worked out, whether or not that would be enough to conclude this transaction. Mr. Mackey indicated the 150 spaces were the minimum number and they could not be temporary. Discussion ensued regarding alternative sites with Mr. Justice indicating the problem is that parking is needed for employee tenants. He indicated it was a hot button for employees that they would have to pay to come to work by paying a parking fee. Mr. Mackey indicated the City must look at the possibility of the Bilgore site being a temporary parking lot. He stated it should be considered to lease this with a future option. He stated if they purchase the garage, the City would retain Bilgore and that an agreement could be reached with the City for a reasonable lease rate. He stated the tax issue needs to be addressed quickly and there is probably some flexibility in the negotiations. Trustee Thomas stated he felt selling the garage would be fair to both parties and this would allow us to sell them 200 parking spaces. Trustee Thomas reviewed some of the potential value of the garage and questioned whether or not the purchasers would be willing to obtain the garage for $985,000. Mr. Mackey indicated they would not. Trustee Thomas indicated that in discussions regarding a parking garage for City Hall, there were looking at a cost of $4,000 per space. In response to a question by Trustee Thomas, Mr. Mackey indicated that Trustee Thomas' calculations do not take into account the special requirements of companies with a large number of employees. Discussion ensued regarding the need for parking in the downtown area. Chairperson Deegan expressed an opinion that if the City Commission had required adequate parking at the time of construction, that there would be some value regarding that. He stated he did not see that the City should make up all the parking deficit on its own. Mr. Mackey indicated they are willing to pay in order to ensure adequate parking. Trustee Thomas stated that with a 4.0 ratio, that would require 550 parking spaces and questioned whether or not that would satisfy their requirements. Mr. Mackey indicated this would still not accommodate high density tenants. Trustee Thomas questioned what it is that the purchasers desire. Mr. Mackey indicated that the need is to satisfy their parking requirements. Trustee Thomas stated a goal for today would be to eventually provide 550 parking spaces. Mr. Mackey indicated one problem with that was the price was something to be determined. Trustee Thomas suggested the purchasers buy the remainder of the garage, lease the Bilgore site and at such time as additional land becomes available, to replace the spaces on Bilgore, and a right of first refusal for the police department property be provided. Mr. Mackey indicated their only purpose for purchasing the garage would be to give the City the funds in order to find the solutions for the additional parking needed. Trustee Thomas re-emphasized that the total of 550 spaces is not needed at this time. He stated if they buy the parking garage, they would have space on the Bilgore site as they need it. Mr. Mackey expressed concern that this would still involve buying the parking garage today and addressing the 150 spaces at a later date. He stated it would be better to buy raw ground than a building. Trustee Thomas reviewed options stating it would be ideal if the police department land became available. He stated if we sold the Bilgore property at less than what the CRA's investment is, they would want to make up the loss at some point. He stated selling the Bilgore site as a plain piece of land was not a good deal. Mr. Mackey stated that 150 spaces is what is needed and the garage is the most expensive option. He stated the loss could be made up on another site and he emphasized that the goal is to turn downtown around. Chairperson Deegan questioned whether or not the party was willing to purchase the garage. Mr. Mackey stated there are willing to purchase it in order to provide the City with funds to allow the City to provide the additional 150 spaces. Chairperson Deegan questioned what flexibility was needed in order to meet the purchasers needs. Mr. Mackey indicated a down payment with an attractive interest rate and there be provided means for an additional 150 spaces. Trustee Berfield questioned if the purchasers would buy the Bilgore site at market value. Chairperson Deegan indicated the property has been assessed by the property appraiser at $443,100. Further discussion ensued regarding possible sale of the Bilgore site. Trustee Fitzgerald questioned if there is another 150 spaces in the downtown area that is acceptable. Mr. Justice stated that if the parking were within boundaries of Myrtle on the east, Ft. Harrison on the west and one block north of Cleveland. In response to whether or not a site has been found, Mr. Justice indicated he did not wish to comment publicly at this time. Further discussion ensued regarding whether or not the CRA was willing to sell the Bilgore site to the potential purchasers and have it developed as a parking lot. Chairperson Deegan indicated the question boiled down to would the CRA be willing to accept $210,000 for the Bilgore site. Consensus of the majority of the CRA was that this would not be an acceptable figure. Chairperson Deegan then questioned whether or not the potential purchasers would be willing to consider a lease arrangement. It was indicated they would if they had a long term resolution, however, they did not want to wind up with a short fall in parking spaces five years from now when they thought it was resolved today. Chairperson Deegan suggested they lease spaces on the Bilgore site at $27 a month and as alternative locations are found, the purchasers would be released from their obligation on the Bilgore site. Mr. Justice indicated they had talked about leasing it, however, felt that $27 a month per space was above market value and they suggested $15 per space for the first 50, $20 per space for second 50 and $25 per space for the third 50. He stated the 39 spaces around the garage, currently used by the police department, would offset the original 50. Questions arose regarding how to enforce who would be allowed to park in the lot. Trustee Thomas stated he would prefer to meter the lot with passes being given to building tenants. Mr. Justice indicated the resolution could not be reached today as more information is needed. Chairperson Deegan stated if they were not buying the garage or the Bilgore site, there would be no need for bond counsel opinion. Mr. Mackey stated he believed there was still a need for the bond counsel to resolve some issues. Trustee Thomas indicated there would be no reason to give 39 spaces on the Bilgore site if the other party did not own the garage. Mr. Mackey stated they would still look at the option to pick up the garage. Trustee Thomas indicated this would be at fair market value within the five year time frame. Mr. Mackey indicated they would see if they could option the building with a known value and an appraisal would be needed. Chairperson Deegan indicated monthly spaces are leased in the two floors in the garage portion owned by the CRA and that not all of them are available to the building. Trustee Thomas questioned whether or not the purchasers planned to lease or provide free parking in the garage. Mr. Justice indicated this would be on a case by case basis. Trustee Thomas questioned the rental rate now. The Executive Director indicated it was $30 to $35 per month and less than half of the spaces available were leased. Chairperson Deegan reviewed the issues and stated the bond question needs to be resolved, that the garage would be appraised at current value and there would be five year option at present value with a CPI escalation clause, that the Bilgore site would provide for a five year lease or less if alternative parking is found or extend until an alternative is found, that rent on the Bilgore site would be $20 a month per space with no credit for the 39 spaces at the police department until they buy the rest of the garage and they are still interested in a right of first refusal for the police department property at the then market value. It was indicated these were the issues that had been agreed upon. Mr. Justice indicated that in the purchase of the garage, they would like an opportunity for a flexible payment schedule. It was indicated this was acceptable. Mr. Justice questioned the resolution regarding the 6 spaces behind the building indicating they want to reconfigure the rear entrance and the area of those 6 spaces would be used for green space. Chairperson Deegan expressed concern regarding this being the entrance to an alley and Mr. Justice indicated it was understood that access would have to be maintained. He indicated they simply wanted flexibility for changing the configuration of that area and they would be getting with the other business owners. Mr. Mackey requested that there be a proposal for a pre-paid parking arrangement in the garage. The Executive Director indicated that if this is done with a particular tenant, they would have to provide it to all and it was requested that it been seen if this was a workable solution. The Attorney questioned what price was to be included for the option to purchase. It was stated this would be decided when this came back for final approval. The Executive Director questioned at what point the parking surrounding the garage would be addressed and it was stated that when the purchasers obtain the garage and if the police department is still there, there would be an offset of parking spaces on the Bilgore site. Chairperson Deegan questioned what time frame would be needed in order for the purchasers to return with a proposal. It was the consensus that a draft of the agreement would be reviewed by the CRA at their meeting of August 16, 1993, and that Mr. Mackey and Mr. Justice would return on August 30, 1993, for final resolution. The Attorney is to provide a memo of understanding for review. Trustee Thomas requested the CRA consider that if the building were retained by the City, the cash flow could be funneled to the CRA for redevelopment projects. He stated it was not his intent to consider the building for a city hall. The meeting adjourned at 3:25 p.m.